Chip stocks rallied Thursday following robust third-quarter results from Taiwan Semiconductor Manufacturing Co. (TSM), calming fears of a potential slowdown in the AI sector.
TSMC's American depositary receipts (ADRs) surged 9.8% after the company reported record profits, signaling continued strong demand for its AI-related products. The company’s net profit jumped 54% year-over-year to $10.1 billion, and revenue rose 36% to $23.5 billion, beating analysts’ estimates and reassuring investors.
Nvidia (NVDA), Advanced Micro Devices (AMD), and Broadcom (AVGO) also posted gains on Thursday, though their increases were more modest compared to TSMC. Nvidia, which relies heavily on TSMC for manufacturing its advanced AI chips, saw a 0.9% uptick. Meanwhile, Qualcomm slipped 0.2%, and Intel rose 0.6%.
Nvidia (NVDA), Advanced Micro Devices (AMD), and Broadcom (AVGO) also posted gains on Thursday, though their increases were more modest compared to TSMC. Nvidia, which relies heavily on TSMC for manufacturing its advanced AI chips, saw a 0.9% uptick. Meanwhile, Qualcomm slipped 0.2%, and Intel rose 0.6%.
AI Chips Drive TSMC's Growth
TSMC is the world’s largest contract chipmaker and dominates the market for semiconductors used in AI applications. This makes it a bellwether for the semiconductor industry, particularly as AI continues to be a primary growth driver. TSMC’s Chairman and CEO, C.C. Wei, emphasized the company’s “extremely robust AI-related demand,” expecting AI chip revenue to account for a mid-teens percentage of overall revenue this year—a figure that is projected to more than triple compared to last year.
The company also announced plans to double its capacity for advanced chip packaging, a crucial process for making Nvidia’s high-performance AI chips. This expansion is expected to be completed by the end of 2024, aligning with surging demand for AI processors.
Positive Outlook Despite Industry Concerns
TSMC’s strong performance came after concerns had been raised earlier in the week when Dutch semiconductor equipment maker ASML issued a soft sales forecast, sparking fears that the AI boom might be cooling. However, TSMC’s upbeat earnings and positive outlook suggest otherwise. The company now expects fourth-quarter revenue between $26.1 billion and $26.9 billion, positioning it for close to 30% full-year revenue growth—up from earlier projections in the mid-20% range.
TSMC’s ability to weather potential industry downturns was noted by analysts, who highlighted the company's superior positioning relative to competitors such as Intel (INTC) and Samsung. “TSMC is not just an AI machine,” said Ben Barringer, a technology analyst at Quilter Cheviot, adding that the company is better equipped to navigate fluctuations in the market.
TSMC’s strong performance came after concerns had been raised earlier in the week when Dutch semiconductor equipment maker ASML issued a soft sales forecast, sparking fears that the AI boom might be cooling. However, TSMC’s upbeat earnings and positive outlook suggest otherwise. The company now expects fourth-quarter revenue between $26.1 billion and $26.9 billion, positioning it for close to 30% full-year revenue growth—up from earlier projections in the mid-20% range.
TSMC’s ability to weather potential industry downturns was noted by analysts, who highlighted the company's superior positioning relative to competitors such as Intel (INTC) and Samsung. “TSMC is not just an AI machine,” said Ben Barringer, a technology analyst at Quilter Cheviot, adding that the company is better equipped to navigate fluctuations in the market.
Future Challenges and Expansion Plans
Despite its strong results, TSMC faces some geopolitical headwinds. Reports have surfaced suggesting that the U.S. Department of Commerce is investigating whether TSMC has been manufacturing chips for China’s Huawei, a company subject to U.S. export controls. TSMC quickly responded, affirming its compliance with all laws and regulations, including export controls, and expressed a commitment to addressing any concerns promptly.
Looking ahead, TSMC continues its international expansion, with plans to build new plants in Europe, Japan, Arizona, and Germany. The company’s future growth is expected to be driven by sustained demand for AI infrastructure and applications, with Wei asserting that the demand for AI chips is not only real but still in its early stages.
TSMC’s market leadership and growing AI-related revenue make it a key player to watch in the ongoing tech rally. As AI becomes increasingly integrated across industries, TSMC appears well-positioned to maintain its dominant role in the global semiconductor market.
Despite its strong results, TSMC faces some geopolitical headwinds. Reports have surfaced suggesting that the U.S. Department of Commerce is investigating whether TSMC has been manufacturing chips for China’s Huawei, a company subject to U.S. export controls. TSMC quickly responded, affirming its compliance with all laws and regulations, including export controls, and expressed a commitment to addressing any concerns promptly.
Looking ahead, TSMC continues its international expansion, with plans to build new plants in Europe, Japan, Arizona, and Germany. The company’s future growth is expected to be driven by sustained demand for AI infrastructure and applications, with Wei asserting that the demand for AI chips is not only real but still in its early stages.
TSMC’s market leadership and growing AI-related revenue make it a key player to watch in the ongoing tech rally. As AI becomes increasingly integrated across industries, TSMC appears well-positioned to maintain its dominant role in the global semiconductor market.
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